Some manufacturers use AES encryption for selected or all keyboards that communicate with custom USB radio receiver, or implement Bluetooth which has its own security stack. Others only XOR data with certain value (e.g. MAC address) which is more of an obfuscation than encryption.

When it comes to wireless mice - many manufacturers don't use encryption (excluding Bluetooth devices) - I guess they assume that information about right/left key presses and screen coordinates is not confidential.

It is possible to "sniff" the transmission, but yes due to the limited range and the fact that most of the devices are "paired" to one another it is harder to "sniff" this signal, than ,for example, cracking the wireless and collecting packets from there.